Are you planning to move into a new house? If so, there's every chance you're deep in the process of buying and maybe even selling a property. There's lots to consider such as your mortgage, property valuations, surveys and renovations, as well as furnishing, packing and removals. If you're buying a new property you may be wondering, what is mortgage protection insurance?
The intention of a life insurance policy is to help your loved ones cope financially in the event of your death and lessen the burden of debts such as a mortgage and living expenses during an already difficult time.
For many of us, our mortgage is likely to be our largest debt. It represents an ongoing and typically high monthly outgoing that, without a life insurance policy, would continue should the worst happen. When it comes to life insurance there are normally two policy types to choose from. Level term life insurance provides a fixed amount of cover that stays the same throughout the policy term, whereas mortgage protection life insurance has a decreasing amount of cover that's usually aligned to the remaining outstanding debt on a repayment mortgage.
Mortgage protection life insurance, also called 'decreasing term life insurance', is typically taken out to cover any outstanding balance on a standard repayment mortgage. Your debt will decrease with each repayment and so will your amount of life insurance cover, meaning that the total amount of the cover will decrease roughly in line with your mortgage.
You can choose the number of years, or term, that you wish the cover to be active for. In the case of mortgage protection life insurance, it is important that you choose the same term as the remaining mortgage. The premiums are usually paid monthly.
If a claim is made during the policy term, the policy will cease once the lump sum payment has been made to your loved ones. If you live to the end of the term, the policy will terminate and nothing will be paid out.
For homeowners looking to sell their property and purchase a new one, if you already have mortgage protection life insurance in place, the policy you have is unlikely to cover the debt of your new mortgage - unless the new mortgage is for the exact same amount and term of years as the existing one. In cases such as these it could be beneficial to assess what cover you have for the remainder of the existing policy, see how it marries up with your new mortgage repayment amounts and term, and take out a new policy to provide any additional cover you require.
It is possible to have more than one life insurance policy at a time. Unlike car insurance or home insurance which could provide you with a saving by switching, life insurance doesn't always reward regular review as the policyholder's age and health are key factors in determining the monthly premium. Therefore, it may be worth considering taking out some additional cover via a new, separate policy.
The most important thing about this type of life insurance is that it can help your family to pay off the remainder of your mortgage should the unthinkable happen. You will find that mortgage protection life insurance does not provide your loved ones with any extra money for other expenses, such as education, loss of income, credit card debts and regular bills.
If you would like your family to be more comfortable financially in the event of your passing, you might want to consider Level Term Life Insurance instead or as well.
Because this type of life insurance is designed to ensure that your mortgage will be paid off should anything happen to you, it may be suitable for you if you are a homeowner with a mortgage. However, this will depend on your overall financial situation and whether your dependants would be able to cope without your income after the mortgage is paid off in full.
Beyond this, if your dependents are likely to struggle without your income, level term life insurance may be worth considering, as you would have the ability to define a fixed cover amount higher than the remaining balance on your mortgage. It will not only give you the peace of mind of knowing that your family will be taken care of, but it will also help them to pay off any other outstanding debts, finance your funeral or even fund your children's education or a break from work for your spouse to look after the kids.
If you are thinking about buying a home, the ability to keep up with mortgage payments is a serious consideration for you and your family.
At Compare Cover, we specialise in comparing life insurance policies and aim to help you find the most appropriate policy for you and your loved ones needs. Get quotes today or read more of our handy life insurance guides.
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